OSB prices have doubled; mill restarts anticipated soon
February 5, 2013
Oriented Strand Board (OSB) prices have been climbing since the spring of 2011 and reached $448 in January 2013. This is the highest level since 2006, almost up 100% year-over-year. OSB pricing has a history of sharp corrections (see graph), and there is some uncertainty over whether prices will be sustained. However, while some analysts believe this price rally could end in the short term with a winter price correction, the majority view is that OSB prices will remain strong through 2013.
Weekly OSB composite price
Like softwood lumber, the price rally of OSB can be largely attributed to an improved demand buoyed by improvements in the U.S. housing markets. This, in combination with producers being somewhat slow to restart idled capacity, has pushed prices up. There are substantial costs associated with re-starting mills and producers want to avoid the downward risk on prices if capacity increases overshoot demand.
To be sure, OSB production has been increasing (see graph below) but most of the production increase has been achieved through increased shifts and production boosts from the already operating mills. Industry data show that there were only two idled mills (Miramichi mill in NB, and Cordele mill in GA) restarted during 2012. Going forward, some idled mills in Western Canada and Southern U.S. plan to restart in 2013, particularly a newly constructed mill (Calrendon mill of Georgia-Pacific) will be ready to produce Q1, 2013.
North American OSB production
OSB demand is forecasted to increase by more than 20% between 2013 and 2014. While it is natural for producers to be cautious in restarting idled mills, high OSB price, if sustained, will eventually encourage producers to do so. However, there is enough untapped capacity to overshoot market demand, and like previous cycles, too many starts have the potential to collapse price suddenly.